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spk00: Hello and thank you for standing by. My name is Regina and I will be your conference operator today. At this time, I would like to welcome everyone to the New Jersey Resources fiscal 2023 fourth quarter and year end conference call and webcast. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. If you would like to ask a question during this time, simply press star then the number one on your telephone keypad. If you'd like to withdraw your question, press star 1 again. I would now like to turn the conference over to Adam Pryor, Director of Investor Relations. Please go ahead.
spk07: Thank you so much. Welcome to New Jersey Resources Fiscal 2023 Fourth Quarter and Year-End Conference Call and Webcast. I am joined here today by Steve Westhoven, our President and CEO, Roberto Bell, our Senior Vice President and Chief Financial Officer, as well as other members of our Senior Management Team. Certain statements in today's call contain estimates and other forward-looking statements within the meaning of the securities loss. We wish to caution listeners of this call that the current expectations, assumptions, and beliefs forming the basis for our forward-looking statements include many factors that are beyond our ability to control or estimate precisely. This could cause results to materially differ from our expectations as found on slide one. These items can also be found in the forward-looking statement section of today's earnings release, furnished on Form 8K and in our most recent forms, 10K and 10Q, as filed with the SEC. We do not, by including this statement, assume any obligation to review or revise any particular forward-looking statement referenced herein in light of future events. We will also be referring to certain non-GAAP financial measures, such as net financial earnings or NFE. We believe that NFE, net financial loss, utility gross margin, Financial margin, adjusted funds from operation, and adjusted debt provide a more complete understanding of our financial performance. However, these non-GAAP measures are not intended to be a substitute for GAAP. Our non-GAAP financial measures are discussed more fully in Item 7 of our 10-K. The slides accompanying today's presentation are available on our website and were furnished on our Form 8-K filed this morning. Our agenda for today is filed on Slide 4. Steve will begin with this year's highlights, followed by Roberto, who will review our financial results. Then we will open the call up for your questions. With that said, I will turn the call over to our President and CEO, Steve Westhilton. Please go ahead, Steve.
spk08: Thanks, Adam, and good morning, everyone. Fiscal 2023 represented another solid year at NJR, as we reported earnings well in excess of our industry-leading 79% long-term growth rate. Our performance this past year speaks to the strength of our diversified business model and our ability to adapt to challenges in ways that benefit our customers and our investors. This morning we reported fiscal 2023 net financial earnings per share of $2.70. This is at the top end of our revised guidance range, which was increased by 20 cents back in the first quarter. We've accomplished quite a bit this year. New Jersey Natural Gas added 8,800 new customers with expansion throughout New Jersey Natural Gas' service territories as our customer growth has returned to pre-pandemic levels. Clean Energy Ventures, grew its project pipeline to the highest level in our company's history, and we increased our in-service capacity by the largest amount for any given year. At S&T, Adelphia Gateway completed its first full year in operation, and Leaf River continued to deliver strong results. And finally, energy services once again delivered outperformance during periods of volatility during the year. As strong as this fiscal year 2023 performance was, we have been more enthusiastic about our future. The details of our guidance for fiscal 2024 are on slide six. We are introducing NFEPS guidance of $2.70 per share to $2.85 per share, which represents a 12% increase from the midpoint of our initial guidance last year. We broadened the size of our guidance range for fiscal 2024 to 15 cents. We have had a range of 10 cents for many years despite significant growth of our earnings. This new range is consistent with those of our peers. Our projections are supported by contributions from all of our business units. During fiscal 2024, a significant portion of our net financial earnings will come from our utility business, as highlighted on slide seven. However, we do expect a higher contribution from energy services in fiscal 2024 than in prior years, due to the outsized contribution from the fixed payments associated with the asset management agreements announced in 2020. Looking ahead, we feel very comfortable with our long-term growth rate in future years, and in fiscal 2025, we expect to return to more normalized segment contributions. Overall, we have a portfolio of complementary businesses that deliver utility-like returns over the long term. With that, I'll turn to a discussion of our business units, beginning on slide 8. We invested over $450 million at New Jersey Natural Gas through a variety of programs in fiscal 2023, with nearly 40% of that capex providing near real-time returns. New Jersey Natural Gas' ability to generate these returns helps to alleviate regulatory lag, which is of particular importance in a high interest rate environment. Within that 40% is our Save Green program, which helps residential and commercial customers lower their energy usage. We spent approximately $60 million in fiscal 2023 to help our customers save money and reduce their carbon footprint, which is New Jersey Natural Gas' largest ever annual investment in the program for the second straight year. We recently completed a commercial energy efficiency project at Jersey Shore University Medical Center, which is located not far from our headquarters here in Monmouth County. We provided over $6 million in energy efficiency financing at Jersey Shore, and expect the net energy savings on this project to pay back the entire cost within four years. Growing these programs is a central element of our decarbonization strategy, and New Jersey Natural Gas has long been a leader in this area. We achieved solid new customer growth throughout the year, adding 8,800 new customers compared to approximately 7,800 last year through a combination of new construction and conversions. During fiscal 2024, our capital deployment strategy will ensure that our infrastructure continues to provide the most reliable and affordable energy delivery service available for our customers. We also expect our customer growth to continue to trend higher. And with our current IIP and Save Green investments, approximately 40% of capital investments are delivering near real-time returns. And finally, we expect to file our next rate case in fiscal 2024, consistent with the timeline of our major technology investments. Moving to slide nine, our solar business, Clean Energy Ventures, had an exceptional 2023. We added 82 megawatts of new solar capacity, which represents the largest capacity increase in any fiscal year since CEV's inception. We expanded geographically, and during the year, over 40% of our capacity growth has come from outside of New Jersey. Our focus is on developing solar investment opportunities to provide high single-digit, unlevered returns, and again, utility-like in their construct. Our project pipeline continues to grow and includes approximately 750 megawatts of potential investment options. As we've discussed in past calls, we are creating a diverse pipeline with multiple opportunities for expansion without any significant reliance on particular geographic location or subsidy programs. Moving to our storage and transportation segment on slide 10, this was our first year with Adelphia fully in operation, which is an 84-mile pipeline that runs from Martins Creek, Pennsylvania, to just south of Philadelphia. Our team did an excellent job ensuring the pipeline operated effectively throughout the fiscal year, particularly during winter storm Elliott. At Leaf River, we continue to pursue service enhancements that will help increase its capabilities for the benefit of our customers. Moving to slide 11, Energy Services had an excellent 2023 with a significant contribution from the AMAs coupled with an outsized performance from our portfolio of strategically positioned assets. The AMAs will allow NJR to exceed its stated NFEPS long-term growth rate this year. And as demonstrated over the course of the last three years, we still have the ability to generate additional earnings from our remaining portfolio in times of volatility. With that, I'll turn the call over to Roberto for a review of our financial results. Roberto? Thank you, Steve, and good morning, everyone.
spk01: Slide 13 shows the main drivers of our NFE for fiscal 2023. We reported NFE of $261.8 million, or $2.70 per share, compared with NFE of $240.3 million, or $2.50 per share last year. The results of our business segments exceeded our initial expectations and reflected a year-over-year improvement at energy services and CEV, partially offset by higher depreciation and interest expenses in our other segments. New Jersey National Gas reported energy in line with expectations, which included another strong year for our BGSS incentive programs. I also wanted to note that a significant portion of the year-on-year increase in O&M at our utility is due to a difficult comparison versus fiscal 2022, when NG&G deferred nearly $11 million of budget expenses in accordance with the July 2020 VPU deferral order. Clean energy ventures increased NFE by over $5 million. As Steve mentioned, we increased our in-service capacity by more than 82 megawatts during the year, and we will recognize the value of the associated tax attributes over the next five years. Storage and transportation reported an NFE of $12.8 million, which included higher revenues from the facilities that went into service at the Delta Gateway during the year, as well as higher depreciation and interest expenses. Finally, energy services reported NSE of $68.5 million, compared to $39.1 million in the prior year. As we look to fiscal 2024, it's important to note that we expect to recognize a significant portion of the AMA's total revenues during the year, most of which will be recorded during our fiscal fourth quarter. Turning to our capital plan on slide 14, over the next two years, we expect to invest between $1.2 and $1.5 billion across the company. This capital deployment is expected to support growth throughout our business units and is consistent with our long-term NFVPS growth target of 7 to 9%. For fiscal 2024, we're increasing the bottom and top ends of the range from our previous projections, largely driven by higher expected capital investments at NGNG. In the next two years, we anticipate spending between $800 million and $1 billion of the utility. At CEV, we see a number of opportunities for future growth and expect to spend between $300 million and $470 million over the next two years, taking advantage of a broad opportunity set of solar investments. And finally, at S&T, we expect to maintain a moderate capital level with service enhancements at Leaf River representing the largest investments. Our capital projections are anchored by strong cash flows from operations. On slide 15, we show the very strong operating cash flow achieved during fiscal 2023. We also show our updated projections for fiscal year 2024 and introduced fiscal 2025. As you can see, we expect cash flow from operations to range between 450 and 490 million in the coming year. Moving to slide 16, NJ&G continues to maintain favorable investment grade credit ratings, and NJR's adjusted FFO to adjusted debt was 19% for fiscal 2023, and is expected to be between 17% and 18% for fiscal 2024. We have no plans to issue block equity. However, as we have stated in the past, our existing dividend reinvestment program includes a waiver discount feature that allows us to raise small amounts of equity on an opportunistic basis. Finally, on slide 17, we provide a breakout of our long-term debt. As you can see, most of our debt is fixed-rate in nature. We don't have significant maturities in any particular year, and we have substantial liquidity at both NJR and NJNG. Our NFVPS guidance for fiscal 2024 and our long-term NFVPS growth guidance assume high interest rates for the foreseeable future. Overall, we are in an outstanding position to fund our growth objectives. With that, I will turn the call back to Steve.
spk08: Thanks, Roberto. Since our analyst day in 2020, NJR has reported 12 quarters of financial results. During this time, we have raised our earnings guidance on five occasions as a result of strong performance throughout our business units. We've exceeded our 7% to 9% long-term growth rate for each of the past three years, and we expect to do it again this year. An important component of our value proposition is the ability to return capital to our shareholders. For fiscal year 2024, we have raised our dividend to an annualized rate of $1.68 per share, a nearly 8% increase compared to fiscal 2023. With this increase, we have now raised our dividend every year for the last 28 years. The combination of our expected growth in dividend provides investors with an expected shareholder return of between 11% to 13%. In the coming years, we'll continue to develop organic growth opportunities that support long-term NFEPS growth targets through prudent capital decision-making reinforced by a strong balance sheet. As always, I'd like to thank all of our employees at NJR for their hard work and contribution. And with that, I'll now open the call for your questions.
spk00: At this time, I'd like to remind everyone, in order to ask a question, simply press star followed by the number one on your telephone keypad. Our first question will come from the line of Julian DeMolen Smith with Bank of America. Please go ahead.
spk03: Hi, good morning. This is Tanner on for Julian. Now that we're a few years into the long-term planning period, what factors are you seeing that could trend your EPS growth to the upper or lower ends of your long-term guidance for the remainder of the planning period, given your upcoming rate filing and CapEx plan, should we think of NJNG as accelerating here in the back end? I'm just trying to get a sense of how you view the linearity of NJNG and then clean energy ventures as well.
spk08: So, Taren, I think you described it right there. You know, we've got a number of options we're able to grow. and other factors of clean energy. We've got a large pipeline of projects at CEV. We've got potential expansion, although nothing's been announced at our S&T group. So you have all those factors pushing forward. Added into that, the fact that we have less in need for equity, platform for future investments. So I'd like to think about it as if we've got a good plan, solidly built, going forward to hit the 7% and 9% growth, and then, you know, the potential for additional investments, you know, should any of the things that I just mentioned, you know, hit.
spk03: Great, thanks. And then, you know, with respect to the upcoming rate case application, can you set some preliminary expectations for the composition of the filing? You know, is it expected to be pretty straightforward, or... Could there be programs or mechanisms attached with the filing?
spk02: Thanks. Tanner, this is Pat Migliaccio, Chief Operating Officer of New Jersey Natural Gas. To answer your question, this is a pretty straightforward rate case. You may recall we'll be filing sometime in fiscal year 2024. The principal toggle for that is in IT investments related to our program next. as well as other I'll call bread and butter utility investments around safety and reliability, pipeline, et cetera. But to hit the nail on the head, it's a pretty straightforward case.
spk05: Great. Thank you very much.
spk00: Your next question comes from the line of Travis Miller with Morningstar. Please go ahead.
spk06: Good morning, everyone. Thank you. Hey, Travis. A quick question on slide 11 to start. The revenue and cash flow projections, what kind of variability should we expect in those or not at all?
spk01: Hi, this is Roberto Bell. So you're talking about the AMA, right?
spk06: The AMA, yeah.
spk01: Yeah, those are contracted.
spk06: There is no variability in those cash flows or revenues. Okay. So in terms of modeling, just model those straight out as you presented them? Correct. Okay. And then can you tell us what the earned ROE was at NJNG this year for the fiscal year?
spk01: No. Unfortunately, that's something we don't disclose publicly. Okay.
spk06: Okay. I understand. And then a higher-level question. On CEV, I wonder if you could characterize both the types of projects that are in the pipeline, and then also your thinking around strategy in terms of building and or contracting and or buying projects in the future?
spk08: Yeah, I guess I'll take the strategy. You know, it hasn't changed. and acquire, we started developing, but certainly not opposed to buying late stage projects or even ones in operation. General strategy is to be able to build, develop, and own within regions and jurisdictions that are favorable and fit our risk profile. So I'd say, you know, New Jersey-like, and we get outside New Jersey, which we have, I think 40% of our projects to date are outside of New Jersey, or 40% going forward are outside of New Jersey. We're really looking at the risk profile, making sure the regulatory environment is favorable, and really matches, you know, what we like to say is, you know, utility-like, you know, earnings across the whole company. So that's the way we're looking at it.
spk06: Okay. Do you foresee... doing projects on your own or would you consider going into maybe some very large projects with a partner or other tax equity partner, however you'd want to structure it. Could you see yourselves going into bigger projects with a partner?
spk08: You know what, I'm not going to take anything off the table, but to date, you know, you've seen the size of projects that we're doing, you know, anywhere from, you know, a few megawatts up to, you know, 25 or 30 megawatts. So, you know, smaller in nature when you look at large-scale, you know, utility-like investments. And I think that niche market, you know, fits us well, not only from a return management perspective. That being said, you know, I think we certainly have the capability to manage, you know, larger projects. on returns and risk profile of the jurisdiction in which we're making the investment.
spk06: Okay. Great. I appreciate the thoughts.
spk00: Again, to ask a question, press star 1 on your telephone keypad. Your next question will come from the line of Robert Mosca with Mizuho. Please go ahead.
spk09: Hi. Good morning, everyone. So on slide 9, which is the staging of the CEB backlog edition, You know, the breakpoints on the x-axis change, so it's kind of hard to tell if anything's different with respect to project timing, but any notable developments you want to call out. It also seems like CEV CapEx in 24 is going to be slightly higher than originally thought, so any thoughts there would be helpful.
spk05: So, what are you looking for, Robert? I'm not sure what the question is.
spk09: Yeah, sorry. So, slide 9, the CEV project edition timeline. Just wondering if anything's changed because the breakpoints on the x-axis are different than they were in the prior quarter. But any developments are kind of steady as she goes. And it also looks like the 24 capex for CEV is slightly higher than originally thought. So, any thoughts there?
spk01: Yeah, Rob. This is Roberto. So, on slide 9, if you convert this slide to prior slides similar to this one from prior calls, There is no significant difference, other than our in-service capacity has increased because we have been taking things in the months of May, August, and January. But if you look at that total, right, that 1.2 gigawatts that we have on the right has not changed. So we continue to move and progress, creating our pipeline. But from the last quarter, when we had this conversation, no material changes.
spk09: Okay, great. That's helpful. Steve, I think you touched on it in your prepared remarks just with the widening of the guidance range. Is that just to match your peers, or is there any more earnings variability in your base businesses this year compared to prior years? And if there is, just wondering what that could be attributable to.
spk01: No, not related to more variability. This is exactly what you said to match our peers. If you think about our guidance range, it's been about $0.10 for 12 years, more than 10 years. And despite that, we've been growing earnings every single year, right? So this is just to bring us back in line with what our peers are projecting on a relative basis.
spk09: Okay, great. Thanks, Roberto. And just a quick last one from me. I know you mentioned kind of pursuing the service enhancements at Leaf River. Just wondering, is that something that could be monetized? Is that an area of growth? Or is that just, you know, improving customer service for those customers?
spk08: I think, you know, the whole strategy associated with our S&T business is to be able to get on to organic growth with those assets. And, you know, certainly we've got a growth mindset in those businesses. So, yeah, we've got some small investments that we're making now, you know, tied to some, you know, contractual arrangements and investments. is much more, it's much easier. So we look at those two facts, you know, we look at expansion. We've got nothing to announce now, but it's certainly something that we look at, you know, that could be outside of the plan.
spk05: Got it. All right. Thanks for the day, everyone. Thank you.
spk00: And once again, for any questions, please press star 1 on your telephone keypad. We'll pause for just a moment to compile the Q&A roster. We have no further questions at this time. I'll turn the call back over to Adam Pryor for any closing remarks.
spk07: Thanks, Regina. I would like to thank everyone for joining us this morning. As a reminder, a recording of this call is available for replay on our website. I hope everyone has a happy and safe Thanksgiving. As always, we appreciate your interest and investment in the jail. Thanks so much, and goodbye.
spk00: That will conclude today's call. Thank you all for joining. You may now disconnect.
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